Clibetre Exploration Ltd. v. Canada (Minister of National Revenue)

Clibetre Exploration Ltd. v. Canada (Minister of National Revenue) Court (s) Database Federal Court of Appeal Decisions Date 2003-01-14 Neutral citation 2003 FCA 16 File numbers A-56-02 Notes Digest Decision Content Date: 20030114 Docket: A-56-02 Neutral citation: 2003 FCA 16 CORAM: STRAYER J.A. SEXTON J.A. SHARLOW J.A. BETWEEN: CLIBETRE EXPLORATION LTD. Applicant and THE MINISTER OF NATIONAL REVENUE Respondent Heard at Vancouver, British Columbia on January 14, 2003. Judgment delivered from the Bench at Vancouver, British Columbia on January 14, 2003. REASONS FOR JUDGMENT OF THE COURT BY: SHARLOW J.A. Date: 20030114 Docket: A-56-02 Neutral citation: 2003 FCA 16 CORAM: STRAYER J.A. SEXTON J.A. SHARLOW J.A. BETWEEN: CLIBETRE EXPLORATION LTD. Applicant and THE MINISTER OF NATIONAL REVENUE Respondent REASONS FOR JUDGMENT OF THE COURT (Delivered from the Bench at Vancouver, British Columbia on January 14, 2003.) SHARLOW J.A. [1] The applicant Clibetre Exploration Ltd. seeks judicial review of a decision of the Tax Court in an informal proceeding, dismissing its appeal from an assessment for 1996. The decision is reported as Clibetre Exploration Ltd. v. Canada, [1999] 2 C.T.C. 2869, 99 D.T.C. 3503. [2] For each of the taxation years 1980 through 1995, income tax returns were filed for Clibetre claiming non-capital losses from its mining business. In 1996, Clibetre had income. It was allowed to carry forward its non-capital losses from 1989 to 1995, the maximum permissible seven years. However, there were not enough non-capital losses in those years to offset the 1996 income. [3] Clibetre then requested that the expenses that created the non-capital losses for the years 1980 through 1995 be characterized as Canadian exploration expenses giving rise to a cumulative Canadian exploration expense balance as of the end of 1995. That would have permitted Clibetre to reduce its income for 1996 to nil, and also would have allowed Clibetre to maintain indefinitely an undeducted pool of such expenses, using them only as required to offset its income in accordance with the statutory provisions relating to Canadian exploration expenses. [4] The Minister refused to give effect to this request, with the result that Clibetre has taxable income for 1996. The Minister assessed tax accordingly, and Clibetre appealed to the Tax Court. [5] In the Tax Court, the only argument made by the Minister in support of the 1996 assessment was that subsection 152(4) of the Income Tax Act prohibits the Minister from reassessing the years 1980 to 1988 more than three years from the date of the first assessment for the year, and thus the characterization of Clibetre's expenses for those years could not be changed to "Canadian exploration expenses" as Clibetre had requested. The Tax Court Judge accepted the Minister's argument, and dismissed the appeal. [6] We are all of the view that the Minister's interpretation of subsection 152(4) is wrong, and the Tax Court Judge erred in accepting it. If in fact Clibetre reported non-capital losses for every year from 1980 to 1995, there is no need for the Minister to reassess Clibetre for those years in order to characterize as Canadian exploration expenses the amounts that gave rise to the non-capital losses initially claimed for those years. That is because the taxable income and thus the tax payable for each of those years would be nil whether the expenses for the year are claimed as deductions in computing a non-capital loss, or treated as Canadian exploration expenses. We conclude that there is no statutory bar to the requested recharacterization. [7] In this Court counsel for the Minister argued in the alternative that Clibetre had not adduced evidence in the Tax Court to establish that the expenses in question meet the statutory definition of "Canadian exploration expense". However, the Minister did not put that point in issue in the Tax Court. On the contrary, when the Minister filed pleadings in the Tax Court stating the assumptions upon which the 1996 assessment was based, one of those assumptions was, "The Appellant was allowed Canadian exploration expenses as current expenses throughout the years 1980 through 1995." In addition, counsel for the Minister conceded at trial and before this Court that "a lot" of the amounts in question probably would qualify as Canadian exploration expenses. In these circumstances, Clibetre cannot be prejudiced at this stage by the lack of evidence in the Tax Court as to the nature of its expenditures. [8] This application for judicial review will be allowed with costs. The judgment of the Tax Court Judge will be set aside and replaced with a judgment allowing the income tax appeal for 1996, and referring the 1996 assessment back to the Minister for reassessment on the basis that, for the years 1980 to 1995, any expenditures of Clibetre that meet the definition of "Canadian exploration expense" must be treated as such, and Clibetre's cumulative Canadian exploration expense must be computed accordingly and applied in 1996 as Clibetre requests, in lieu of the non-capital loss carry-forward previously allowed. [9] As Clibetre was represented in this Court by its principal shareholder, who is not a lawyer, the costs of this application are limited to disbursements, which we fix at $400. (Sgd.) "Karen R. Sharlow" J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-56-02 STYLE OF CAUSE: Clibetre Exploration Ltd. v. MNR PLACE OF HEARING: Vancouver, B.C. DATE OF HEARING: January 14, 2003 REASONS FOR JUDGMENT: SHARLOW J.A. CONCURRED IN BY: DATED: January 14, 2003 APPEARANCES: Clifford C. Rennie (As Agent) FOR THE APPLICANT Ron D.F. Wilhelm FOR THE RESPONDENT SOLICITORS OF RECORD: Clifford C. Rennie FOR THE APPLICANT Morris Rosenberg FOR THE RESPONDENT Department of Justice